tv Nightly Business Report PBS July 12, 2010 6:30pm-7:00pm EDT
good even allñiçóñr crowañr dels a major earnings of report%& before the seeing and is a good one. after the closingñiñr bellçóçó h better thanñi expected revenues.yr in after hours tradingñi in response to that.ñiup more than. let's take añi closer look at some of those results now. alcoa earned 13 cents perñi share in the second quarter, añr penny better than analyst4/. revenues jumped 22%ñrñi to 5.2 bi@ >> susie: and lackingñi ahead alcoa alsoñr raised its growthko
expecting 12% growth upçóçó from 10% an in justçó a few minutes we'll talk with the chairman & ceo klaus kleinfeld about that forecast. now that alcoa has kicked off earnings season we'reñi looking this week at some o the nation's biggest industry sectors andñi what toçó expect from thçó quarterly results.ñi we begin tonight withçó basic materials. these are the companies thatñi mine, develop and process raw materials. now those firms got hammered duringñi the recession butc u.s. economy'sñr recovery.ñté:uk report, the sector faces some uncertainty for the rest of the year. >> reporter: the basic materials sector could be the comeback kid when firms report second-quartfbñr earnings. companies in that sector make everything from steel4p!o . thomson reuters estimates profits for the 32 basic materials companies in the s&p 500 index will top $6 billionñi in the secondñi quarter. that's nearly double what they made a year ago during
the depth of the reception when-- recessionçó when some basic materials companies lost money. analysts say the segment is benefitting from the u.s.e@6hce they also admit the recoveryñr has been anemic. that isçóñi reflected in the dow jones u.s. basic materials sector index.1f itñi took off in the beginning of the year as factory orders increaseñi on signs theçó economy was improving.ñi butñi theñr index tanked in theú crisis in europe could spread here.ñi kimberlieñr dubord follows it for briefing.com. she says the sector has been improving in recent week bus there is still concern about our economy. >> i think more people are becoming much more concerned about the second half and what the recovery looks like and whether or not that's really sustainable inñr its current forecast so i think prices are being adjustedñi lower.ñi demand expectq.rjnññr are beingñi adjusted lowerñr so has an impactñiñr forñr prices.i >> reporter: what may help some basic materialsjdf"k# in m paper andñiññi forestñi products industries, is dqy8 morningstar'sñiñi thomasñi
technology isçó cuttingçó demand for someñiñi paper products her, demand in china is h>ill strong. >> the one thing china+ really has is a growingñi middleñi class.m-pandçó as the s expands, the demand for paper products, everything from printing papers,ñrñiñr newspapers, magazines subscriptions, tissues, allñri3( ofñiçó this grows as the wealth of the average chineseñi citizenñrñ >> reporter: new technology kos help the chemical industry gl profits in the coming mon+ps. dupontñiñi could benefit from solar energy. certainly solar has been a lot hotter and a lot bcg than people expected in the first half of theñrñr year there areñr expectatin+ that that moderates a bit as some of the subsidies paid into the solar industry moderate a bit. but we still expectçó someñvóçó pretty robust growthñi andñr maybe more than what theñi
overall market isñrñr expecti volatà andñ be headwind forñi the basic material sector in the second half of the year but think many firmsçó can buck thoseç costs and increasing efficiency.d&>-dianneñr eastabry business report," chicagoñiñr. >> tom: let's take a look atçóñ÷ theñvó storiesñr inñr tonight'sr news wheel. some small gainsñi on wall street asñi inée$torsñiñrñ)ñdñid those results from alcoa.ñ the dow rose 18 points, the nasdaq added nearly -- the s&p 500 gained 3 quarter of a point. >> now while volume on the big board dropped fromñrñrñiñiçr 0
nation's financial rule book may come to the senate floor for a vote this week. so says majority leader harry reid. the move mates come now that republican senator scott brown of massachusetts has thrown his support behind the bill despite what he calls some misgiving. still ahead on the program, investors have access to more information today than ever before but does that help or hurt them? tonight's "your mind and your money" has some surprising answers. >> more now on those alcoa earnings and we're happy to have with us now alcoa chairman & ceo klaus kleinfeld, klaus, nice to see you again. >> very good, hello, susy. >> susie: so you gave a pretty upbeat growth forecast calling for 1% growth in the year asset-- year ahead. where is that growth going to come from because most of the countries that you do business in like the u.s.
and europe are slowing down. and even the pace of growth in china is slowing down. so where is the growth going to come from? >> sus yee, it's not slowing down. in fact, when you look at what we call the end market you go to automotive and you see automotive continues to grow. even in europe, you know, where you saw demand, the end customer demand is not really growing but exports are growing 40%. so in total the market is growing 3.8%. when you go to china which i have heard on the report before, it's the growing middle class. it's the growing that drive demand in almost all categories. we expect that we pretty much see it across-the-board coming from automotive, trucks and trailer, packaging, even an aerospace we see the auto book starting to refill this year 269 new orders of large aircraft compared to 69 in the comparable time frame last year.
i mean all of these are clear indications the global recover is well under way. >> so klaus, are you saying then that all of these worries about recession are, you know r overblown. are you saying that your customers that you just talked about are not preparing for a double dip recession? >> all i can say is what do we see in regards to orders. i mean let's go to the growth engine china. i mean we just saw this week imf coming out with a global forecast. actually imf took up the global growth forecast for the world. you know, to a new level. whereas at the same time you saw them projecting for china 10.5%. the chinese government upped their projection from 8.6 to 9.1%. you see in the u.s. we pretty much see the growth coming from those areas that i said, growth projection rather around a 3% range. and even in europe, you
can't put europe all in one basket. you have plans, and germany, strong export nations where growth comes from. >> susie: i see what you are saying, which is very different than what we are hearing on consensus forecasts. is growth enough that you will be hiring again? >> well, we actually have through the downturn achieved a new level of productivity as well as flexibility. and we will not give that up. but once we see the market returning, we are hiring. keep in mind, alcoa is a very international company and as we sit here, i mean we are hiring already in strong growth markets like china, like the middle east. >> susie: interesting. the aluminum that you sell to all of these customers, those prices have been coming down dramatically, down 40% in the last two years. you can make a decent profit with these low prices? >> well, that's what you saw. i mean our profits are up. we now have an even margin of 14% in this quarter. you actually saw that our
revenues are up 6% on a quarter-to-quarter basis. and that number speaks for itself. >> susie: all right. let's talk a little bit about alcoa stock. down 33% so far this year. one of the worst performing stocks in the dow. many analysts i talked to today said that they like to see you use the 1.3 billion in cash that you have on the books for either increasing the dividend or for buying back shares. are things good enough that you can do that? >> well, look, it's interesting to see that human beings are learning and also forgetting. when you think of the largest downturn in the industry, the aluminum industry has seen in 2009 where metal prices came down 60%, we actually went to a very, very strong sustainability program and managed to get our cash back up again to the levels of 1.3 billion that we have today on our books. our target is that we go to
a debt to cap ratio of roughly around 33%. and we are a little bit away from that, that is the first priority. >> susie: quickly are you going to reward investors with a bigger dividend or stock buyback? >> we have decided when we raised new cash, we have decided the board has decided to bring the dividend down. we look at this every time we sit together as a board and make our new decisions. and we obviously want to create value for our shareholders in many ways as well as for our customers. >> susie: unfortunately, we're going have to leave it there. we have run out of time but thank you so much for coming on "nightly business report". we really appreciate it. >> pleasure. >> susie: we've been talking about klaus klein phel, chairman & ceo of alcoa.
>> tom: we heard from the alcoa boss and his investors weighed those results, material stocks weighed on the broader market. let's get you updated on with the market focus. among the items on the docket, material sector, investors took a look at was the news in june that china imported less copper and iron ore which used to make steel that overhung the market. three of the top four percentage losers of the s&p 500, iron other producer cliffs, coal minor massey energy and copper free port mcmoran. fertilizer maker mosaic was also a big closer, warning a lawsuit may force it to
indefinitely close a florida mine. this is one of the companies 11 phosphate mines. it fell almost 8% on the news. monday has a reputation for merger announcements and speculation about those deals. today was no exception. we'll start with a $5 billion business services deal. human resource consultant hewitt is the target of this offer from insurance broker aon, a cash-and-stock deal that values hewitt at 48.27 per share based on aon's closing price tonight. aon's stock dropped on the deal while hewitt rocketed hire. aon a 52-week low, for hewitt an all-time high. meantime it was talk about a possible deal that had shares of b.p. jumping. b.p. is talking with potential buyers but says the entire company is to the for sale. apache may be one of those interested in a $10 billion piece of the company. the market chatter pushed b.p. stock up to a six week high. meantime b.p.'s cost of the gulf oil disaster has reached $3.5 billion.
apache wasn't the only name thrown around as an interested in party in b.p.. separate reports also mention exxon and chinese oil giant petro-china. apache shares droped about 3% on the b.p. talk today. the u.k. sunday times newspaper said exxon mobile has gotten the green light from the u.s. government to look at making a run for b.p.. and china's biggest public oil company petro-china tells the financial times it would welcome what it calls a closer relationship with b.p.. the playboy bunny may go private there are two efforts that may make a play for one of the world's most recognized brands. first founder hugh hefner in a private equity firm are offering $5.50 per share. in a letter to the board hefner says he is not interested in any other sale or merger. but the board may have to consider another one. the parent company of penthouse magazine plans to make an offer. all this talk pushing playboy shares up to a two-year high. >> tomorrow of course intel's quarterly results due out after the closing bell. and that is tonight's market focus.
>> government debt troubles are not confined to exotic locations like greece and portugal there are plenty iou problems in state capital buildings from sacramento to albany and spring feel, illinois. this month's bloomberg market magazine reports 46 states face red ink on their budgets over the next year. ed robinson is a senior writer with bloomberg market magazine. he joins us. welcome to "nightly business report". >> thank you, glad to be here. >> tom: we'll take a look at a match the u.s. when you look at all 50
states lots and lots of red ink. only alaska montana, north ca debt a and arrange arc are expected to be in the green when it comes to fiscal 201 -- how bad is the problem? >> well, the problem is acute. 46 states face these shortfalls and all together the state spending and investment accounts for about 12% of u.s. gross domestic product. in the first quarter of 2010 the fiscal problem at the state shaved off about half a percentage point on u.s. gdp. so this is a sizable problem. >> tom: for the national economy here. so going forward, as we look at the balance of this calendar year not first half of next calendar year, clearly you've got lots and lots of states with these budget problems but 49 states require balanced budgeted so how do you explain the requirement for a balanced budget but yet 46 can't get there? >> well, a lot of states will end up borrowing. they'll use accounting gimmicks.
and tricks to forestall some of the problems that they have in the current fiscal year. but what we've seen, this is the second year now, is a lot of cuts. serious cuts to state welfare programs, there have been furlough programs in states like california. where public employees have lost about 15% of their annual pay. and the cuts just keep coming across the country. of course that's only one half of the answer, right, is to cut spending. the other half of the answer is trying to raise revenues and lots of states have different proposed solutions for, that is someone in rio, for instance, you take a look at kansas and new mexico, for instance. they want to raise state sales tax. in fact they have raised state sales tax. in the state of washington it is a tax on soda pop. how are other states responding to these problems? >> well, a lot of other stateds are not using taxes. california, new jersey.
there, the politics is clearly driving toward the spending side of the ledger. you see in new jersey governor chris christie, a republican, he would like to cap property tax expenditure increases at 2.5% and in california governor arnold schwarzenegger, another republican wants to bring all public employees down to the federal minimum wage until a budget is passed. so states are really grasping right now for all sorts of moves to cut spending. and in many states, raising revenue through taxes is just not politically palatable. >> tom: so instead they are looking at spending. what about the role of public pensions in this big debate, ed? >> well, public pensions, the politics there are racheting up to almost a fever pitch. governor chris christie again in new jersey has taken square aim at publicñiñiñ@ an.m has gotten a democratically controx
legislatureñi toçó agreq/ public employees must contribute more to the health care premium,.ñi >> tom: clearly they have to. ourçó guest ed robinson, senior writer withñi bloomberg markets magazine. the august edition goes on sale tomorrow.ñixd >> susie: here's what we are watching for youñi for tomorrow. a quartáásvñrñi earnings from intel and come up. we'll also get a check on imports and exports with the may trade balance.ñr and greece will auctij first treasury bill since attempting a bailout in may. also tomorrow, our new segment "word on the street" looks at the dogs of the dow and how those canine components are doing for mutual-fund investors. well, add consumerçó reports to theçó iphone 4 critics. the publication can't recommend apple's newest iphone because it has so many reception problems. consumer reports say its engineering#dested three iphonew3 4s and determined those reception complaints are valid. the tests also show at&t's network might not be to blame. for now the magazine recommends readers purchase
the iphone 3 gs. apple has not commented on the article. >> the federal deposit insurance corporation, the f.d.i.c. now has new powers to investigate large banks. today's agreement with bank regulators solved a big problem at the agency, to the being able to get specific details about troubled banks. back in 2008 when washington mutual was on the brink of collapse the f.d.i.c. could not get its hands on information it needed to assess the risk the wa-mu.
>> technology has revolutionized investing in many ways. especially when it comes it to the delivery of investment information. well, now even the smallest investor has an even-- has an almost limitless amount of information and investment choices. but does that lead to better decisions about money? in tonight's segment of "your mind and your money", dan grerb says today's crush of information has implications no one could foresee a hundred or more years ago. >> for investors thomas edison's real breakthrough wasn't the light bulb, it was his improvement of the stock ticker. until it came on the scene, you had to be on wall street to get stock prices quickly. but edison's ticker tape changed that bringing realtime stock information to investors everywhere.
now some 140 years later, investors can't seem to get enough information or get it fast enough. here's an example of that. a typical market information web site. let's call it grechbiz. at a single glance you see the stock market crawl, major market indices, currency exchange rates, commodity prices, foreign market data and for good measure, video from a congressional hearing. but does this ocean of information help us make better investment decisions? or does it simply fool us into thinking we are making a better decision. >> the stock that i got my whole life in is down 50. how smart am i. >> reporter: in the preinternet age michael was a professional stock trader. now retired he day trades from his home computer. he says getting information on-line is fantastic. >> before people trillion either experience or by studying or asking the right people got all the knowledge in their head.
now i think people don't have to think so much. they just rely on their computer. i know i do. >> reporter: but he says seeing breaking news can give an investor the false sense of having an extra edge. >> so the news is out there, very quickly. but by the time we see it, the stocks are already up or down. so you might benefit from it, but not as much as you might think. >> reporter: he may have the right idea. studies show that having more information can make investors overconfident. leading them to do more trading. but they also show that increased trading often doesn't translate into making more money. here's another piece of conventional wisdom. the more investment choices the better, right? maybe not. take this experiment involving 4 varieties of gourmet jam. first one group of people was allowed to sample only 6 of the jams. then a second group was allowed to sample all of the 24 types. you might think that the
customers that had more choices would buy more jam. but that didn't happen. turns out, the group thatñr was given fewer choices boug ten times more thançó the otherñr groupñi. swarthmore professor barry schwartz says too many choices can pose a problem. >> when people have a lot of options to choose from, chances are there is no one option that is the best in every way. and that means that you have to make trade-offs. you have to compare things and give up one good thing to get another, perhaps better thing. people don't like to make trade-offs. >> so when people are asked to commit to an investment from a range of choices they worry that they will regret their decision. as a result, schwartz says their response is often inertia, they choose to do nothing. but he says that can be a mistake. >> now not deciding is not benign. sometimes it can be extremely qening. when people don't put money into their 401(k) for the first five years because they can't figure out which fund to put their money into
they will have major consequences down the road when they have to retire. >> reporter: so when you have to choose between different investments don't be intimidated. although making a choice requires a little extra effort, the endçó>xáq: be worth it.ñixdçó nightly "nightly business report," miami. >> susie: i sure know what that feeling is like when you go in a restaurant and they have a menu of too many choices or those mutual fund lists that list everything. it is overwhelming. >> tom: i tell you what, if there are 24 jams on the menu at theñi restaurant, my question is where the peanutñi butter. >> susie: goodñbó question. >> tom: that is "nightly